United we stand, divided we fall – the coming rise of cryptofiat

This is a call to arms.

Cryptoland as a whole is entering into decadence. We are resting on our laurels because BTC reached 1000 dollars and even now it is three times its 2013 ATH.

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Blockchain, the future of exchanges

As I did it with Sean King's article, I repost here a great comment on the power of blockchain — this time relative to mesh networks.

Just a quick excerpt:

The more traffic your facilitate on your network, the more Bitcoins (or "local" crypto) you are paid. The more space your provide for storage, the more cloud computing power, the more you are paid.

Now imagine how it would go with smart grid, renewable energy and automated electric cars. When not in use, you car select continues recharching with its solar cell then once the battery is full, the excess is given to the network, thanks to the smart grid. And you are paid with "local crypto" for this extra electricity you are providing to the network. All of this perfectly secure and with very low fees.

And this just one example of what the future brings to us. You should go into cryptos.

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The power of the blockchain – Sean King

The original text deserved much more than a poor formatting.

I don't presently have time to write an excerpt or translate it into French, but if you are interested in doing so, I would be glad to host the said translation or excerpt on my blog.


Dear Mr. Syracuse:

I am an attorney and Certified Public Accountant with a Master’s Degree in Accounting.

For nearly twenty years I have also been licensed life and health insurance agent, a registered representative of a broker-dealer, and an investment advisor representative of an investment advisory firm. Consequently, I am very familiar with both the purposes of, and need for, financial services regulations.

However, I am also an early Bitcoin adopter, and I have a strong understanding of the practicalities and implications of blockchain technologies.

My legal, accounting, securities, insurance, and investment advisory backgrounds, combined with my familiarity with Bitcoin, make me uniquely qualified to offer feedback and commentary on New York’s proposed virtual currency regulations. I hope you find these comments helpful.

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Extended 10/200 strategy

I introduced you earlier to the 10/200 strategy by noted Bitcoin mogul Risto Pietila:

Everytime the price doubles, sell 10 % of your remaining stash.

And the corollary to the 10/200 strategy, which ensures you get free money from 73% of your stash:

ROI after three doublings.

Here, there is two schools: one that continue to sell after ROI is reached and one that just hold. Which school you will follow depends on how impatient, in need of money or confident on the future of your asset you are.

Now I would like to introduce you to what I call the extended 10/200 strategy. This is nothing new, traders use it everyday. Still, credits go to aminorex.

After selling, place a buy order of the amount your sold at X% below your selling price and sell again at target price. Rinse and repeat.

For instance, your trading plan is to sell 10% of your Monero at 0.0064 BTC. You decide to buy back at 0.0051 BTC, because you are confident this is just a temporary fall in price and that it will reach 0.0064 again and probably more. Once it will reach 0.0064 again, you will sell again. In the process, you will have gain some moneroj. Free money. Once it doesn't work anymore (the price stops yoyoing around 0.0060 BTC), you just take the money and cash out (or invest it on something else).

This extension of the 10/200 strategy is compatible with both schools (the continuous sale school and the holding school).

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Investment strategy – 10/200 and trailing stop

Disclaimer:

  1. I did not apply these rules in the past and I lost a lot of money.
  2. I am starting to apply them now but it is still too early to say if they work. Caveat emptor. They do work
  3. These are well-known rules, I didn't invent anything.

Rules

  • Don't invest more than you can afford to lose
  • Methodology is the key. Well, you still have to find the right method :)
  • Buy low, sell high - which means selling when it seems that it could still go higher
  • Don't panic buy, don't panic sell (easier said than done).
    • Don't sell at a loss - difficult rule to follow, because sometimes it is necessary - after a bubble if you bought high,  for instance.
    • When there is a pump in progress, place a buy order at either 80% or 120% of the price pre-pump - I did not decide yet.
    • Beware of bull traps (a second) increase in value after a sudden drop (anatomy of a bubble). Detecting a bull trap requires looking at much more than six hours, or even a day, so use the various timescale of the charts.
    • When selling, always take into consideration twice the transaction fee (you paid once to get in and you'll pay a second time to get out), provided both prices are the same percentage, of course.
    • Don't trust the depth chart (graphical representation of the cumulative ask/buy orders and bid/sell order) they are completely manipulated. Most experienced traders will instant-buy or instant-sell at a price they already decided and will place fake order to give wrong signals to traders.
  • Identify what can go very high and buy. Example of something that won't go high: a stock with low volume (it may get volume later, so check back from time to time). Check history of the stock, not just the last six hours.
  • Everytime it doubles, sell 10% or your remaing amount. After three  doubling (and thus three selling), you paid back your investment; even if the price crumbles now, you would still make a profit. I call this the "10/200" rule and credits go to rpietila and kmicic77
  • Place trailing stop orders at 10%. If the exchange doesn't accept trailing stop, move to another exchange.

Some more thoughts

  • best option if trailing stop is not available: stop loss (a.k.a. seat belt)
  • third best option (always available): take profit

Take profit is implemented in any crypto exchange that I know of. You say at wich price you will sell (for instance, I'll sell my crypto I bought at 1000 once it will reach 1070).

Stop loss is like a seat belt for your money (if the price goes below 1010, sell). Would you drive a car without a seat belt? Well, on most crypto exchange, you are driving without a seat belt. That's probably one of the reason why money go so high: no one wants to lose and the best way to ensure this is to have the price go higher. Still, this is not a sane attitude.

Finally, trailing stop is the best one. It will sell not at a fixed price, but at a percentage of the current price! It depends much less on the faith you have on the crypto so it is much less about luck. Of course, you have to choose the percentage carefully (swaphole's owner considers that 10% is a bit too much) plus, there is a chance that the percentage brings the price lower than the one at which you bought (if the price goes down just after you bought). Kraken has a nice phrase for describing a trailing stop: riding the trend until price falls by X%.

Example

You buy at 1000. The price moves to 1100 then when you come back, it is down to 900

  • No conditional order: you lost money
  • Take profit at 107%: you earnt 70
  • Stop loss at 1010: you earnt 10
  • Trailing stop at 10%: you earnt 90

Of course, the price could spring back from 900 to 1200 and then you would get 200 with no conditional order. Much like when you bet at the Russian roulette and win. Does it still make Russian roulette worth it? I let you be the judge.

Stress

Plus, consider the stress. Do you want to be constantly thinking about the charts and have no life? There are three variables (or operands) in calculating the cost of something, and people rarely consider the three of them. By decreasing order of attention (not of importance), these are:

  • money
  • time
  • energy

With no conditional order, either you are careless, or this money doesn't matter for you or you'll spend a lot of (emotional) energy. Personally, this is the third one. Now the added monetary value is not worth the extra energy I would spend. That's why  rpietila says the 10/50 is a sane method (and I'd say the use of a trailing stop is a sane method too).

Limits

  • I know only two one crypto exchanges with trailing stop: kraken.com (for major cryptos) and swaphole.com (for minor cryptos). Swaphole has all the mechanics working, but has not enabled it because of its presently low volume (5 BTC compared to Mintpal's 6000 BTC)
  • If everyone was using trailing stop, the market would be much less volatile. Thus, much less money to make. Speculation is a zero-sum game; in order for you to win, it requires someone else to lose. So, it is in your best interest to not have anyone know about trailing stop. So why do I post this? First because I am a compulsive teacher, even when it deserves me. Second because I'd like swaphole.com to have more volume - the best strategy is worth nothing if there is no one to buy your money.
  • I'm still pondering one thing (ouf of the "will my strategy work" question, of course): should I place trailing stop orders on the money I plan to sell? Ideally, I would use a combined order (trailing stop or take profit, whichever comes first), but I don't know any market which allows it.
  • I do not know any exchange offering combined orders. Two that I'd like to see implemented are:
    • Trailing stop or take profit, whichever comes first
    • Buy order then sell order at +x%

Conclusion

Methodology is everything. Intuition is not your friend and emotion is clearly your enemy. I understand this whole article may sound complex. So please don't hesitate to ask, I'll be delighted to reword it to make it easier to understand.

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Innovations in altcoins

I already said in the past how I consider altcoins as the promising-yet-undervalued part of the cryptocurrency ecosystems. Altcoins are frowned upon, as "profitors", trying to steal honest people money out of BTC.

I beg to disagree. Altcoins follow a Darwinian evolution. And everywhere Darwinian evolution is at work, make sure to keep an eye.

Altcoins are very similar to Linux distributions. Much like Linux distributions are based around a core (the Linux kernel), the altcoins gravitate around a basic concept (the blockchain). Granted, the altcoin ecosystem has its share (or even more than its share) of scams. It also has a lot of sincere-but-failed attempts. And, finally, several lessons, successes and innovations.

Here, I will try to list them:

Lessons

  • Initial distribution issue is of paramount importance. A currency considered as unfair won't succeed (except if it Bitcoin, for historical reasons)
  • No IPO, no premine. These two are free entrances for scammers. Sometimes IPO and premine are sincere (like NXT, maybe), but the market doesn't know
  • No PoW (or Groestl PoW/PoS). Proof-of-Work is bad for the environment, particularly the oldest one (SHA-256); like Accelerando's Charles Stross said it, "Mining BtC has a carbon footprint from hell" (read bitcarbon.org). Plus, I read that in order to sustain its price, PoW requires more coins every day (a criticism of Dogecoin) - I don't understand this argument, but this is a recurring one. Pure PoS (proof-of-stake, i.e. interests)has proved reliable (although I think it had not yet been cryptographically proven), but the issue of initial distribution still occurs. One way around it is Fast PoW (MintCoin and later BlackCoin, only five weeeks and one week, respectively), but the shorter the PoW phase, the less fair it is; the longer the PoW phase, the more polluting it is and the more it encourages rich mining rig owners. PoW has its shortcomings, what about the alternative? At least, use a less consuming hash algorithm, like GroestlCoin does with Groestl (less energy-demanding than X11 or Keccak, themselves less energy-demanding than Scrypt, itself less than SHA-256); the added value of Groestl is that the "richer advantage" (owning several GPU) is less interesting with Groestl; so fairer.

Successes

  • The simple answer is: look at http://coinmarketcap.com/ after filtering out the heavily premined coins. I will give only some
  • LiteCoin: the original "for the rest of us" currency. The idea was that BTC had moved in the realm of the riches, since SHA-256 is only minable with expensive purpose-made machines (ASIC). Litecoin moved to the Scrypt algorithm.
  • Blackcoin. Nugh said. +7400% in one month (due in no small part by the fact that people want to leave the "bitcoin trap" now that the price is falling). Before reaching the 10k satoshi barrier, it suffered heavily from price manipulation, which in turn lowered the confidence of all but day-traders. It remains to be seen if it will continue that way. Any sane mind would say it cannot. But a sane mind would not be on the crypto world.

Innovations

  • PoS. Initiated by PeerCoin, turned into a power of its own by MintCoin (and later BlackCoin but in much smaller way), PoS avoids the environemental issue of PoW (see above). Pure PoS production would tend to favour high interest (like PoScoin, GhostCoin and MintCoin do with 50%, 50% and 20% annually respectively). Other coins consider PoS should not "compensate" for PoW but just be a nice addition for a coin that has a value of its own (this is the route BlackCoin is taking, with a x74 increase in one month, almost Bitcoin-like)
  • Proof-of-Transaction. FlutterCoin's innovation is to reward people for actually spending the money. That's an interesting idea: after all, a money has long-term value only if it is being spent. This has similar implementation in real economy, where people receive fiat for buying something in fiat, effectively becoming a discount.
  • Merged mining. To enforce security, some coins are created on top of other - this also lowers the environment footprint of the coin to almost zero (out of the cost of the parent coin, of course). Dogecoin is taking this route.
  • Plugable coins. Similar to merged mining, some coins are meant to be extensions of another coin. The best-known is Mastercoin.
  • Non-currency use of cryptos. Namecoin is the best-known of them, but not the most versatile. Namecoin plans to be used as a decentralised DNS. But other new use of the blockchain technology are being considered. NXT is definitely the most talked about, with smart contracts (also a Mastercoin possibility), coloured coins (coins that the sender may be sure it will be used for what he wanted it to be), decentralised voting, cost-cutting for directories maintenance (this is what the real banks are the most interested about at the moment)
  • Greater anonymity. Give an IBAN to someone, this person won't know how much money you have and the history of your bank account. Give a cryptocurrency address to someone and this person will now everything. This may be both a good thing (sousveillance) and a bad thing (loss of privacy). That's why some currencies like Darkcoin, Anoncoin and Zerocoin have improved upon this.
  • Resilience to concentration. As mentionned earlier, ASIC are a plague for the "rest of us" who can't afford them. Litecoin was the original "anti-ASIC" coin. Unfortunately, ASIC are coming to the Scrypt algo. The answer was double-sided: on one hand, move to other hashing algorithms (I already mentionned why Groestl is the most interesting one for the moment); on the other hand, use difficulty retargeting, since ASIC, being so specialised, cannot adapt to such a change - this was the reason for the initial success of Vertcoin, the first "anti-ASIC" coin. This lead to Kimoto's Gravity Well and later on Darkcoin's Dark Gravity Well. Notice that these anti-ASIC strategies are simple useless for pure PoS coins: no mining, no problem :) Other attempts at getting a fair distribution are Faircoin's 100% quick giveaway and FaucetCoin's long giveawat by the use of faucets.
  • Multipools. Less an innovation than a strategy. A multipool automatically switches mining from one PoW coin to another and usually autosells in a given currency (BTC most of the time, but there are a BlackCoin and a MintCoin multipool). It is a parasistic attitude, in that such multipool destroy the value of the said coin and is pretty similar to what happens in life science (botany and zoology particularly): a predatory behaviour and more exactly an apex predator attitude, with all the risks involved in it (an apex predator can die because it exhausted its food ressource). Think also of the ecology of vulture and lions in the wild: when a gnu is dead, common vultures come but cannot pierce the skin. Greater vultures with stronger peak can pierce and they feed. Once they are full, they leave and the common vultures can take the rests... until the lion come and only after he left will other animal be allowed to eat what is left of the gnu. Here, multipools are the lions - they usually do not come first, but when they come, the come in force. That's why several coins resorted to Fast PoW: PoW is over before any big player had a chance to notice. In real world economy, there is a proverb for this: "giant or dwarf". Giant survive, dwarf get unnoticed and everything is between is getting crushed.

To sum it up, the innovations are about lessening the environmental footprint, increasing fairness of distribution, encouraging spending and exploring non monetary uses. Except for the last two, these are domains where the historical Bitcoin falls flat and shows no sign of getting any better.

Altcoins, the future of bitcoin!

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